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China property

Long road to maturity ahead for China’s 1.2 trillion yuan stratified and undeveloped rental housing market

  • Sector is expected to reach 3 trillion yuan, with 252 million renters, by 2025
PUBLISHED : Wednesday, 19 December, 2018, 9:02am
UPDATED : Wednesday, 19 December, 2018, 9:02am

Liu Juan, 28, lives in a village in northeast Shunyi district, 20km away from downtown Beijing. She has to climb narrow and steep stairs to get to her 8 square metre apartment, which is stacked with boxes. Throw in a sofa bed, and there is barely any room for visitors to sit. Clothes hang on a cooking range.

The telephone signal is weak and Liu, who works in a micro company in the education sector, has no internet access. She pays 1,800 yuan (US$261) – or 36 per cent of her pay cheque – a month in rent.

“I don’t have any dreams for Beijing, or a plan for the future. I am just drifting – I don’t want to go back to my hometown,” she says as she heads out for a cafe 8km away, to work. There are no cafes or restaurants nearby. Twice a week she travels 90 minutes to her company’s office in northwest Beijing.

Steven Huang, 30, works in financial media and lives in a cosy apartment a station away from Beijing’s bustling Guomao area. An access control system keeps non-residents out, and his 55 square metre apartment boasts a spacious bay window with spectacular views of the skyscrapers in Guomao.

Huang pays 9,000 yuan, a third of his salary, as rent every month. “I chose to live here because I want it to inspire me to keep working,” he says as he sips an energy drink besides the window, taking in the winter sunshine.

After living with friends for five years, he wanted an apartment that was comfortable and private. He used rental company Cjia, which is part owned by the Huazhu Hotel Group and venture capital fund IDG Capital, and this saved him the hassle of buying furniture as well as cleaning services. Huazhu has more than 4,000 hotels in mainland China, and reported 8.2 billion yuan in annual revenue last year. It expects to report about 10 billion yuan for 2018.

Liu and Huang are on the opposing ends of China’s rental market, worth 1.2 trillion yuan in 2017, and show how stratified it can be. They are among the 194 million Chinese renters who made up the market last year, according to the China Rental Housing Association. By 2025, this market is expected to reach 3 trillion yuan, with 252 million renters.

On the one hand, many low-income renters like Liu bypass agents and approach individual landlords, who rarely guarantee their rights as tenants; on the other, young professionals with high-paying jobs like Huang use institutional operators for the security and quality they can provide.

The middle ground is populated by office workers who have used brokers and agents, and are in one-year leases.

And rents keep going up. According to a report by property listings service zhuge.com, rents rose by 6.6 per cent on average in November. It said half of Beijing homes were rented for 2,000-5,000 yuan, with prices varying from 36-200 yuan per square metre a month.

“The rent increase rate is likely to pick up next year, as landlords will demand a higher rental yield. The current yields are too low,” says Chen Lei, an analyst with zhuge.com.

Yang Xianling, head of research at Lianjia, China’s biggest property agent, says only 2 per cent of rental homes in the country are offered by institutional operators such as CJia, compared with about 30 per cent in the United States and 80 per cent in Japan. Beijing has accelerated the development of rental homes across the country, in line with President Xi Jinping’s housing policy, which has backed renting as a way of quashing speculation in the market.

Institutional operators in China range from developers and hotel groups to start-ups backed by venture capital, and only started to grow four years ago. They usually hold or lease a whole building and sublease it, offering standardised management services, amenities such as gyms and cafes and public spaces for socialising. Such properties are generally 15-30 per cent more expensive than comparable spaces nearby.

“Urban workers have traditionally relied on individual landlords, a market that suffers from unstable rental periods and low levels of transparency,” says Daniel Yao, head of research at JLL China.

He says it is hard to forecast how long it will take for China to pass through the phase of accelerated growth and to maturity as in Japan and the US. This depends on a range of factors, many of which are controlled by the government, such as tenant rights protection, asset acquisition and costs, and financing and taxation.

JLL forecasts that by 2022, 750,000 newly completed rental apartments will enter the market in the six key cities of Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou and Chengdu, an about sixfold increase from 2018, and will benefit from a double shot of favourable demographics and policy support.

For now, such supply is off limits for renters like Liu.

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